Asian currencies dropped against the dollar on Thursday as concerns over a tariff war between the United States and China endured, keeping investors cautious on regional trades. The dollar retreated from a three-week high against a basket of major peers but was firm against the regional currencies. "When you take the dollar against the euro for example, it is more or less in range trading. But Asian currencies have further weakened against the U.S dollar," said Sim Moh Siong, FX strategist at Bank of Singapore.
"This reflects the concerns about trade tensions." He added that the public hearing on auto tariffs also kept the trade tensions alive. On Thursday, the US Department of Commerce will conduct a public hearing on its investigation to determine the effect of imported cars on national security.
The Trump administration launched an investigation in May into whether imported vehicles and parts posed a national security threat. Trump has told automakers he was considering tariffs of up to 25 percent on imported passenger vehicles, up from 2.5 currently.
China's yuan led the regional losers on the day, shedding 0.3 percent against the dollar. It fell to a one-year low after the official yuan midpoint was set below the key 6.7 per dollar level. "The yuan's weakening has happened in the backdrop of more stimulus coming up from China. Greater liquidity in the Chinese markets typically mean its currency would weaken," said Bank of Singapore's Sim.
The central bank, which oversees monetary policy in China, is widely expected to deliver more bank reserve ratio (RRR) cuts in the coming months. Analysts said yuan's weakness dragged down other Asian currencies on the day. The Indian rupee fell 0.26 percent on worries over higher oil prices and foreign selling.
Foreigners sold about $7 billion worth of Indian bonds and equities in the first half of 2018, data from stock exchanges showed. They have sold another $320 million so far this month. The Indonesian rupiah also edged lower ahead of a central bank monetary policy decision due later in the day. The bank is expected to hold its main policy rate at 5.25 percent on Thursday, after raising it by a total of 100 basis points between May 17 and June 29 to support the weakening rupiah.
The Thai baht fell to its lowest in more than nine months. Thailand's finance minister said on Thursday that it should not rush to increase interest rates as inflation has just returned to the central bank's target range, and any impact from a trade war is expected to be small.